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The Bitcoin Report 2 [pdf]

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Re: The Bitcoin Report 2 [pdf]

#31

Post by InclinedPlane »

Aqueous wrote: post #13
vyrotek wrote: post #7

"There is no capital nor wealth creation to speak of; only as much money as was put in. While somebody may buy a bitcoin for $1 and then sell it for $200, no value was added in this process, so it is simply a transfer of wealth. The people who profit will do so by taking from those who lose. As the deflationary feedback amplifies the desire to hoard, the exchanges will become illiquid. Eventually, buyers will give up…

This describes what happens in the short term, probably repeatedly. But what happens in the long term? Traders learn; they adjust with respect to risk. People will become acquainted with the volatility of the BitCoin currency and adjust their buying and selling practices as a result. People will hold onto the currency longer because they've seen it crash before and recover. The curve will flatten and become a slope.…

Long term? People stop using bitcoin.

You theorize that the boom/bust swings will diminish in intensity until eventually bitcoin becomes stable.

Others theorize that the boom/bust cycles will grow in severity until eventually everyone just gives up on bitcoin.

So far there's very little evidence for the stability option and a lot of evidence (and economic theory) for the speculative bubble theory.

Do you have any evidence of the "market share" of bitcoin users who are in the market for purely currency reasons growing relative to that of those who are in the market for purely speculative reasons? From everything I can find out it seems as though the reverse is true.

Re: The Bitcoin Report 2 [pdf]

#33

Post by polshaw »

The value of BTC just doubled from 60 to 120 in 40 minutes.. wtf is going on there? (looking at btce/USD)

(disclaimer: i'm not trying to hype, I expect it will come back down again shortly, it just seems weird to change that much that quickly)

Edit: yup.. back down to 80 20mins later.. can anyone tell what kind of volumes were traded in this period? ..I wonder if anyone was able to double a serious amount of money in 40 mins(!). Or how much money would have been needed to shift the price that much?? I suspect trading volumes are lower than normal due to mtGox being closed.. I really am having doubts that closing to let things 'cool down' is really going to work out (side: why should that even be a role for MtGox anyway?!).

Anyone have any thoughts on what will happen when it comes back online? Presumably a lot of people are only registered to trade with mtGox so have been prevented from buying/selling while the price has continued to fall.. it would seem to me we're either going to see a significant worsening of the crash or a recovery. ??

Re: The Bitcoin Report 2 [pdf]

#35

Post by el_senor_duerpo »

carmaa wrote: post #25

A "report" not covering the greatest current use case for the currency - namely anonymously buying weed through the Internet tubes? Not saying it is a good thing, just that there's actual value creating going on. Right now.

Hi there. Actually, I did cover value of Bitcoin in use as a medium of exchange in footnote 2. Because there is no production in the bitcoin economy, or very little to be entirely accurate, the real exchange rate should basically be one. Why? Because most users of bitcoin live within very large production economies. Why would buyers pay more or sellers accept less, if they would be better of transacting in the domestic economy?

You might imagine a slight premium for bitcoins because they facilitate transactions that would be difficult in the domestic economies, such as money laundering or black market trade, but you could just as easily argue that the real exchange rate is less than one due to the relatively lower number of people to trade with, concerns regarding being hacked, and uncertainty regarding future government regulation of bitcoin. That's why I decided the most neutral approach would be to assume purchasing power parity across bitcoins. Admittedly, this assumption may not be great as speculation runs rampant and everyone runs for the exits, which would imply a heavy discount in the real exchange rate.

Re: The Bitcoin Report 2 [pdf]

#36

Post by ghshephard »

polshaw wrote: post #33

The value of BTC just doubled from 60 to 120 in 40 minutes.. wtf is going on there? (looking at btce/USD) (disclaimer: i'm not trying to hype, I expect it will come back down again shortly, it just seems weird to change that much that quickly) Edit: yup.. back down to 80 20mins later.. can anyone tell what kind of volumes were traded in this period? ..I wonder if anyone was able to double a serious amount of money in…

spits out coffee

I just went to https://btc-e.com to copy/paste the value and show you how you were wrong, and that the price has been stable at $65USD (I've been watching it for an hour) - But, when I got there - had jumped up to $115USD.

I can only imagine this must be what it was like during the Tulip Bulb Craze.

Re: The Bitcoin Report 2 [pdf]

#38

Post by el_senor_duerpo »

Aqueous wrote: post #13
vyrotek wrote: post #7

"There is no capital nor wealth creation to speak of; only as much money as was put in. While somebody may buy a bitcoin for $1 and then sell it for $200, no value was added in this process, so it is simply a transfer of wealth. The people who profit will do so by taking from those who lose. As the deflationary feedback amplifies the desire to hoard, the exchanges will become illiquid. Eventually, buyers will give up…

This describes what happens in the short term, probably repeatedly. But what happens in the long term? Traders learn; they adjust with respect to risk. People will become acquainted with the volatility of the BitCoin currency and adjust their buying and selling practices as a result. People will hold onto the currency longer because they've seen it crash before and recover. The curve will flatten and become a slope.…

I think it does describe what happens in the long term. Basically, if the thing can never get off the ground in the short term, then it will never get off the ground in the long term. Every surge in popularity has the high likelihood of setting off a speculative bubble. As the rate of increase in the stock of bitcoins decelerates, this problem will only get worse.

Re: The Bitcoin Report 2 [pdf]

#39

Post by el_senor_duerpo »

InclinedPlane wrote: post #31
Aqueous wrote: post #13

Earlier quoted context omitted.

This describes what happens in the short term, probably repeatedly. But what happens in the long term? Traders learn; they adjust with respect to risk. People will become acquainted with the volatility of the BitCoin currency and adjust their buying and selling practices as a result. People will hold onto the currency longer because they've seen it crash before and recover. The curve will flatten and become a slope.…

Long term? People stop using bitcoin. You theorize that the boom/bust swings will diminish in intensity until eventually bitcoin becomes stable. Others theorize that the boom/bust cycles will grow in severity until eventually everyone just gives up on bitcoin. So far there's very little evidence for the stability option and a lot of evidence (and economic theory) for the speculative bubble theory. Do you have any evi…

This is exactly right. The problem is in some respects worse than stated. After the last bubble, it appears as though speculators did leave. However, every time the demand increases sharply for bitcoins, they return. After all, who could resist such a fantastic arbitrage opportunity?

Re: The Bitcoin Report 2 [pdf]

#40

Post by el_senor_duerpo »

ricardobeat wrote: post #11
vyrotek wrote: post #7

"There is no capital nor wealth creation to speak of; only as much money as was put in. While somebody may buy a bitcoin for $1 and then sell it for $200, no value was added in this process, so it is simply a transfer of wealth. The people who profit will do so by taking from those who lose. As the deflationary feedback amplifies the desire to hoard, the exchanges will become illiquid. Eventually, buyers will give up…

> The exchange rate will fall faster than orders can be fulfilled Is that possible? In the event of a crash all buy orders will be fulfilled, ordered by price/time. The exchange rate can't move if there are no orders being executed.

Well, here's Mt. Gox today: http://bitcoinity.org/markets/mtgox/USD

And here's what happened on another exchange while Mt. Gox was down: http://bitcoinity.org/markets/btce/USD

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